Successful Supplier Ownership
Suppliers are a crucial part of business continuity and performance. Supplier ownership aligns business and CSR processes and leverages the supplier as a key partner to improve conditions and mitigate risk at the factory level. The development of an effective supplier ownership program requires strategy and a sound understanding of the suppliers in your supply chain.
When we talk about suppliers we are referring to agents, licensees, vendors, factory groups or importers, and by effective supplier ownership we mean that suppliers are proactive about driving responsible business practices as opposed to waiting for audit results. Specifically, that means that suppliers:
Vendors or factories are often not incentivized to outperform their competitors on social and environmental standards. Merely including a reminder of expected compliance in your supplier code of conduct or purchase order, coupled with a factory audit, has not led to sustainable compliance. Instead, a structured framework for action at a vendor level is the missing success factor for improving performance.
If you want to get supplier ownership right, the programmatic framework of the ELEVATE supplier ownership program is for you:
The 7 program components can ideally be implemented within a 2-3-year timeframe and can be aligned to your program as the brand or retailer with the support of the four pillars that set the program up for success. Suppliers would be expected to commit to driving their factories towards full transparency and seek continuous improvement.
Why sentiment matters
Even when retailers and suppliers are effective in implementing the above framework, programs are most successful when brands and retailers select suppliers strategically. This often raises the question of whether supplier ownership programs should focus on the largest suppliers or those with the highest risk factors. Approaching segmentation based on a combination of risk and influence to develop a differentiated solution is a common approach for this.
As crucial as this is, it underestimates the importance of another key selection criterion: supplier willingness to implement compliance programs or change, measured in supplier sentiment.
To understand this better it helps to distinguish sentiment from influence. Influence is business leverage based on spend, i.e. greater spend means greater influence. Sentiment, however, is the consideration of an attitude or a viewpoint. Negative supplier sentiment has actually been seen to cause resistance to structured change, making it well worth it to invest in your understanding of and the improvement of supplier sentiment.
An effective way of understanding viewpoints is through vendor sentiment surveys that require buyers to factor in the implications of their own business practices towards suppliers.
The vendor sentiment heat map below provides a clear example of the biggest barriers to positive vendor sentiment. Vendors were asked: In your relationship with this brand, which of the following areas do you find most challenging? (Select your top 3)
Even though the responses were organized based on the number of years the supplier has done business with the client the most common challenges were: frequent changes to orders, forecasting and brand communication.
These types of challenges suggest that the brand may want to reflect internally on where their buying practices may be a source of supplier frustration and in the case of changes to orders, could even be an underlying cause for compliance issues like excessive overtime and unauthorized subcontracting.
One of the key elements of a strong supplier ownership program is the supplier’s willingness to flag issues to their customer before they escalate. To do that, there needs to be a level of trust and ongoing communication between them. Having a strong positive sentiment therefore becomes a competitive advantage. It improves the relationships brands or retailers have with their suppliers, and increases the flow of products and services and financial information which results in better performance.
Want to know more? Listen to the ELEVATE webinar: ‘Supplier Ownership: The link between sentiment and performance’ Jennifer Clarke (Caruso) (Director, Supplier Ownership) and Arno Gasteiger
(Responsible Sourcing Manager).